Questions -
Q1. Hooker Company sells $200,000 of ten-year, 8% bonds to yield 10% on January 1, 2014. The bonds pay interest annually on December 31. In the following questions, use effective interest rate method.
How much will Hooker finance by issuing the bonds? (Assume there is no other expenses.)
What is the bond carrying amount at the end of 2014?
What is the bond interest expense for 2014?
What is the amount of cash interest paid in 2014 on the bonds?
What is the bond carrying value at the end of 2015?
What is the amount of bond discount amortization for 2015?
What is the amount of cash interest paid in 2015?
What is the amount of bond interest expense for 2015?
Q2. The following information pertains to a bond issue of the Amerio Corporation:
Maturity value: $1,000,000
Maturity date: December 31, 2017
Stated interest rate (Coupon rate): 6%
Interest payments are made annually on December 31st
Date of issue: January 1, 2012
Effective (market) interest rate (Yield to maturity) at issue: 6.4%
On December 31, 2015, when the market rate was 7%, the Amerio retired entire bond by paying $985,000 plus accrued interest.
Determine the amount of the gain or loss on the bond retirement. (Clearly indicate gain or loss and the amount.)